What’s the difference between a repair and an improvement?

Tax Accountant Cheltenham

Deductions for a repair, maintenance or an improvement is an area that the ATO pays particular attention to in tax returns. For this reason, it is important that investors understand the difference.

Repairs are considered work completed to fix damage or deterioration of a property, for example replacing part of a damaged fence.

Maintenance is considered work completed to prevent deterioration to a property, for example oiling a deck.

Any costs incurred to repair or maintain a rental property can be claimed as an immediate 100 per cent deduction in the year of the expense.

A capital improvement occurs when the condition or value of an item is enhanced beyond its original state at the time of purchase. This must then be classified as either a capital works deduction and depreciated over time, or as plant and equipment depreciation. An example of a capital works deductions could be replacing the kitchen cupboards. If any plant and equipment items are removed and replaced, for example a complete air conditioner which is no longer working, this will also be considered a capital improvement.  If you were to just replace a faulty part in the air conditioner, then that a repair.

Investors considering completing any major works to their property should contact a specialist Quantity Surveyor (like BMT) to obtain an updated schedule.

If you need more information contact Amanda or Noel in the office on 03 9585 7555 oremail us.

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